ECB Emphasizes on Importance of CBDCs, Posing Risks for Central Banks

The warning about potential destabilization is a sign that they, along with many other institutions, are recognizing its upward mobility.

By
Robert D. Knight
on
June 3, 2021
Category:
Blockchain News

ECB Protects

In a report demonstrating considerable foresight and good sense, the European Central Bank (ECB) has warned central banks and governments which choose not to pursue Central Bank Digital Currencies (CBDC) that their financial hegemonies may be under threat of destabilizing.

The authors of the report, economists Massimo Ferrari and Arnaud Mehl, outlined serious concerns that ignoring cryptocurrencies might cause. In particular, they noted a risk to financial security for banks which do not offer their own digital currencies, stating the following:

“One concern could be a situation in which domestic and cross-border payments are dominated by non-domestic providers, including foreign tech giants potentially offering artificial currencies in the future. Not only could this threaten the stability of the financial system, but individuals and merchants alike would be vulnerable to a small number of dominant providers with strong market power, and the ability of central banks to fulfil their monetary policy mandate and role as lender of last resort would be affected…. Issuing a CBDC would help to maintain the autonomy of domestic payment systems and the international use of a currency in a digital world.”

This is most likely in reference to companies like Amazon, Facebook, Google, and other tech giants who have almost monopolized their markets. If these companies develop their own cryptocurrency, the power that would grant them is definitely a cause for concern.


The Euro CBDC

The interest in CBDCs is not new for Europe’s Central Bank. Christine Legarde, the President of the European Central Bank (ECB) has previously gone on record to state that she has a ‘hunch’ there will be a Euro CBDC in the next few years. Speaking to the ECB Forum in November 2020 she noted that Europe would not be the first to launch a CBDC, but that it could reap significant benefits from its issuance. 

“We’re not racing to be first. And we believe that a digital Euro will not be a substitute for cash. It will be a complement to cash…. My hunch, but this is a decision that will be taken collectively, is that we might well go in that direction, which does mean that a digital Euro is not going to be available right away. Because obviously, we are going to have to address all the issues of anti money laundering, financing of terrorism, privacy of users and all their information, the appropriate technology that will carry that digital currency. And this is a project that will probably take us two, three, four years before it is launched.”

This cautious optimism is still a positive trend for the crypto landscape, as the public opinion of crypto has not always reflected financial authority viewpoints. As the Venn diagram of investors, governmental banks, and commercial financial companies merges, there will be inevitable growth in the sector.

FOMOing In

The latest warning from the ECB marks a period in which governments and central banks are increasingly wary of digital currencies and their potential to upend the traditional financial system. While the ECB’s warning of “foreign tech giants” may be a coded reference to Facebook, the US has its own bogeyman in the form of China and the digital yuan. As greater numbers of players enter the field the list of potential threats can only increase. For this reason, it seems likely that CBDCs are swiftly reaching a tipping point when almost every central bank will FOMO in.

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Robert D. Knight

Robert D. Knight is an experienced journalist and copywriter who has been working in crypto for 4+ years. His bags are heavy and he also hodls some cryptocurrency.

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